This past week marked another volatile one in the market. After a significant rally, stocks suffered a large drop Thursday, with the S&P 500 down 5.9%, its worst day since March 16. The market had previously rallied 45% from its late March lows, and was flat for the year to date and trending lower overall. The Dow rose 400 points on Friday, but Wall Street recorded its biggest weekly loss since bottoming on March 23.
After a downturn in March, momentum turned positive in April and continued into May, as stocks registered healthy gains, and investors looked to future economic hopes rather than current woes. As we look to June, many investors believe a sustained and complete economic recovery may rest on developing a vaccine for COVID-19.
In recent days, there have been growing concerns as coronavirus counts in a number of states are on the rise, including Texas and Arizona, which had been spared the worst of the first wave. The US has now seen over two million confirmed coronavirus cases and over 110,000 deaths.
There have also been concerns when it comes to policy response to the COVID-19 crisis. While the initial policy response was overwhelmingly supportive, the Fed released an outlook on Wednesday suggesting an extended recession while at the same time not increasing their monetary support. Many feel as though they should have stepped in further. Furthermore, Congress, which offered significant support for both Wall Street and Main Street in the early days of this crisis, is now torn about the next round of stimulus.
When you take a look around the country and the world, it is clear that we are in an awful recession as well as a humanitarian crisis. Policymakers will have to do more to get us through the challenges that lie ahead. There are valid reasons to be optimistic about possible treatments in the near future and about potential vaccines later on, but this pandemic will continue to grind on our economy and on our society.
As the market continues to assess the long-term value of these businesses, it will periodically become too optimistic, and periodically become too pessimistic. Due to the uncertainty surrounding our current circumstances, we should expect elevated volatility for a prolonged period, which is hard for many people (and the markets they form) to digest. This volatility will create opportunities—sometimes to buy undervalued assets and sometimes to sell overvalued ones. Days like Thursday are why we consistently recommend diversification—while stocks fell, bonds rose slightly.
The key to successful, long-term investing is a well-diversified, customized portfolio that focuses on tax-efficiency, cost-effectiveness and risk management. We create and manage investment models tailored to your goals, timeline and evolving life circumstances. This is a challenging time in the real world and in the financial markets. We are continuing to monitor the markets, re-assessing portfolios and assisting our clients in any way necessary during these uncertain times. Click here to find out if your investments match your risk tolerance. And, as always, please reach out with any questions you may have – we are here to help!